Rather Taxing

In light of advice recently given to the government by the Treasury, suggesting that it should look to including plans for tax cuts as a part of the next Budget, Deputy Prime Minister and Finance Minister Michael Cullen has gone on the defence, going so far as to state on Close-Up last night that he believed that the problems that "high" taxes allegedly pose may possibly cease to exist over the next year. The Treasury has identified what it perceives to be a potential risk inherent within the practise of what is (apparently) high taxation -- that economic growth is being stifled significantly, and that it will be stifled further should the current tax rates be maintained.

The counter-punches to these risks that were cited were, in fact, somewhat to the contrary of what the National Party chose to argue in the lead-up to the election; but they nonetheless provide the opposition with a significant amount of clout that it may wield against the Labour-led coalition government. The alleged need was pressed for the growth rate in government spending to be decreased substantially, in order to allow for minor-yet-meaningful incremental changes in personal and company tax rates at the high end of the scale. Other possible solutions put forward by the Treasury included the weakening of established tariffs, a rethought of the carbon tax plan, and the sale of further state-owned enterprises.

Michael Cullen has been quick to jump on the Treasury's words and point out to all concerned that the ministry is not, after all, suggesting that tax cuts be implemented for all New Zealanders, but merely that the most highly-taxed individuals and companies be given a break. This served to emphasise that the advice that has been issued is not exactly supportive of National's economic policy. However, that hasn't deprived the National Party of the opportunity to tell Labour "I told you so," in light of the fact that the potential benefits of tax cuts have, effectively, been announced by a decidedly reputable authority -- no less, one that is working in the interests of the established government. The Treasury's focus on the importance of significantly decreasing tax rates in the highest brackets in particular, also potentially shows a slant to which Labour is directly philosophically opposed.

National came under extensive fire from the bulk of the left of Parliament during the election campaign, with Labour taking advantage of the fact that the National Party's tax policy could very easily be perceived to distinctly favour those families and individuals included within the highest income brackets. It was successfully made clear that National's promise to provide tax cuts to all New Zealanders would, in reality, probably only have a noticeable effect on a small number of people, should the party have made it into power. Thus, that the Treasury has now identified that such rich-favouring policies would be the most lucrative for the national economy puts the government in a bad position, in which it can easily be picked to bits over this issue.